Food security law won't hit fiscal deficit: Arvind Mayaram

NEW DELHI: The government on Thursday said the implementation of the food security law will not impact the fiscal deficit for the current year, pegged at 4.8% of GDP.

The government is certain that it will achieve the fiscal deficit target of 4.8%, Arvind Mayaram, secretary, department of economic affairs said.

"The finance minister has very clearly said there are red lines and fiscal deficit shall be maintained at 4.8%. It cannot be allowed to slip up and we will not permit it. That's for sure," said Mayaram.

The assurance from the finance ministry came after private economists said fiscal deficit may exceed the target by 50 basis points or 0.5%.

"We had already factored in 10,000 crore this year as additional cost and we don't think during the year if it (food security programme) has to be rolled out, there could be any slip up on that (fiscal deficit),"said Mayaram.

On Wednesday, the cabinet decided to come out with an ordinance to implement the food security bill that will guarantee highly foodgrains at subsidised rates to over two third of the population.

The government will need over 60 million tonnes of food grain at the cost of about 1.25 lakh crore to meet its commitment under the law. The scheme is likely to take at least six months to cover the entire country.

Finance Minister P Chidambaram has set aside 77,740 crore towards food subsidy in the budget estimates for the current fiscal and allocated additional 10,000 crore towards the incremental cost on account of the food security law.

Singapore base DBS bank in a research note to clients said that it does not expect a repeat of last year's fiscal prudence in 2013-14 and this year's deficit could exceed the target by at least 0.50%.

"A renewed push to bring the Food Security Bill to life and the spectre of higher fuel subsidies validate our expectations of potential fiscal slippage this year," it said. The subsidy bill will get pushed to 2.3% of GDP above the targeted level of 1.9% as a result of the additional burden coming in on the food subsidy front, the report said.

However, Nomura said it did not expect much impact of the law in the current fiscal, but warned it could have serious consequences later.

"We don't expect a substantial fiscal impact of the bill in FY14 as it is likely to be implemented only in phases initially...However, the medium-term consequences could be far reaching and will be clear from FY15 onwards," Nomura economist Sonal Varma wrote in a note.